IRAQ: Millions of Dollars Paid in Cold, Hard Cash to Some Defense Contractors

Franklin Willis, a former official with the Coalition Provision Authority, told the Senate Democratic Policy Commmittee that after the fall of Saddam Hussein, Iraq was "like the Wild West -- awash in $100 bills." One contractor, Custer Battles, was paid with $2 million in fresh U.S. bills, stuffed into a gunnysack, he said.

WASHINGTON -- Testimony before a Democratic congressional committee yesterday put a Rhode Island contractor at the center of a controversy over how U.S.-occupation forces in post-invasion Iraq disbursed and accounted for hundreds of millions of dollars.

Franklin Willis, a former official with the Coalition Provision Authority, told the Senate Democratic Policy Commmittee that Iraq, after the fall of Saddam Hussein, was "like the Wild West -- awash in $100 bills."

Willis described how, during one point in the summer of 2003, Middletown-based contractor Custer Battles was paid with $2 million in fresh U.S. bills, stuffed into a gunnysack.

Willis said the cash was a partial payment on a $16-million contract that Custer Battles had won to provide security for eventual civilian flights at the Baghdad International Airport.

Willis noted pointedly such flights have never occurred on a regular basis since the U.S. invasion but that Custer Battles continued to seek and win other kinds of security jobs from the CPA.

"This is a scandal," Senate Minority Leader Harry Reid, D-Nev., said. "This is the tip of the iceberg. This is unbelievable."

Michael J. Battles, a Custer Battles co-founder and a onetime Army officer and GOP congressional candidate, confirmed some of the hearing's more dramatic story lines, including the disbursal of huge sums in shrink-wrapped bricks of cash in the chaotic atmosphere of post-invasion Baghdad in the summer of 2003.

Battles also said in an interview that his company would have prefered to deal in wire transfers or other instruments besides cash and he said he agreed with much of Willis' criticism of the CPA's unorthodox battlefield contracting practices

Yesterday's hearing came just two weeks after an audit of the CPA by the special inspector general for Iraqi reconstruction found the agency had failed to provide proper oversight of ministry spending, issued unauthorized contracts and lost track of $9 billion in Iraqi funds.

In response to that criticism, L. Paul Bremer III, the former administrator of the authority, had strongly defended the agency's financial practices.

Bremer said auditors mistakenly assumed that "Western-style budgeting and accounting procedures could be immediately and fully implemented in the midst of a war."

Also testifying yesterday was Alan M. Grayson, a lawyer representing two self-described "whistleblowers" who worked with Custer Battles in Iraq. Grayson told a panel of two senators and a congressman, "In our case, the Bush administration has not lifted a finger to recover tens of millions of dollars that our whistleblowers allege were stolen from the government."

Battles called it "outrageous" that the committee relied so heavily on allegations by Grayson's clients, whom Battles described as an embittered former employee and a former business associate with a big financial stake in the success of the civil suit against his company.

"I am absolutely mystified that such a biased party as Mr. Grayson was allowed to testify and we were not contacted," said Battles said in a telephone interview. "This has my blood boiling."

Battles noted that the Justice Department examined the allegations contained in the civil suit and declined last October to prosecute Custer Battles.

But Battles acknowledged that the Pentagon has barred his company from government contracts and has withheld payment of millions of dollars, pending its investigation. Battles said that ban, which his company has appealed, was based mainly on what he called the false allegations of a former employee fired in Iraq in 2003 and a former subcontractor who failed in an effort to become an equity partner in Custer Battles.

Sen. Byron L. Dorgan, the North Dakotan who is chairman of the Democratic Policy Committee, acknowledged that he had not invited any representative of Custer Battle to appear at yesterday's hearing. Dorgan said Democrats held a partisan hearing because Republicans in Congress and the Bush administration have not done a good job of investigating alleged contract irregularities in post-war Iraq.

Custer Battles says it won tens of millions of dollars worth of competitively bid government contracts in post-invasion Iraq. Battles said that there were no breaches of airport security during the time that his firm was under government contract. He conceded that the anticipated civilian flights never took place but he ascribed that failure on the unanticipated violence of the continuing insurgency.

Grayson's testimony largely summerized a civil lawsuit brought by his clients, Robert J. Isakson and William D. Baldwin, against Custer Battles early last year. Isakson was a Custer Battles employee for a time and Baldwin was a contractor doing business in Iraq.

They alleged tens of million of dollars of "false claims" under the company's contracts with the CPA -- a charge that Battles and his partner, Scott Custer, have denied.

Justice Department spokesman Charles Miller confirmed yesterday that federal prosecutors had declined to press the case against Custer Battles that Grayson had developed.

Marine Lt. Col. Roseann Lynch, a spokeswoman for the Defense Department, had no comment on whether the Custer Battles contracts are being investigated by the Pentagon's inspector general.

Find out more about the Coalition Provisional Authority, audits of its activities, and the Custer Battles company, via related Web sites, at:

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